At least it's over.
That's perhaps the best that can be said about Palm's (Nasdaq: PALM) fiscal second quarter. Ever since the firm warned that an unidentified carrier's delay in certifying its Treo 750 would cripple the Q2 numbers, investors were expecting the worst, with little hope for the best. But the good news is that when the worst happened, it wasn't as bad as feared.
On Tuesday, management informed us that, including the effect of stock options, Palm earned its owners $0.12 per share for the quarter. A decline from last year's $2.51 to be sure, but as we pointed out last week, last year's profit derived almost entirely from a one-time tax credit.
Even so, there's no denying the results were miserable -- and yet, the stock didn't sink on the news. Why?
Here's why
Because if you trust management's guidance, it's telling us that the quarter was an anomaly and that the future looks a bit brighter. Peering into that future, Palm predicts Q3 sales of $400 million to $410 million, up about 5%, and gross margins of 35.8% to 36.3% -- as much as 270 basis points higher than last year. Although net profits are expected to fall by nearly two-thirds, this is due less to any problems inherent in the company and more to the fact that Uncle Sam will be imposing a much higher tax rate this quarter than it did in last year's Q3.
The future could brighten further still if the company's new marketing push succeeds. In the press release, Palm noted that it has hired a new marketing chief and is spending $25 million on a marketing campaign to "generate mainstream awareness of the Treo," partnering with Fandango, eBay (Nasdaq: EBAY), Google (Nasdaq: GOOG), Yahoo! (Nasdaq: YHOO), Avis Budget Group's (NYSE: CAR) Orbitz, and even The Onion in this effort.
Now if Palm can just get its balky carrier to certify and get the Treo 750 into circulation in time for the marketing push, this story could turn out just dandy.
For further Palm reading, try:
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Fool contributor Rich Smith does not own shares of any company named above.
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